By Cassie Fish, http://cassandrafish.com
Most hedged cattle feeders canâ€™t get cattle sold quick enough, ringing in profits, loving the basis. Cattle are performing extremely well in the yards post-heat wave and are closing out exceeding weight projections in some cases with +4 pound a day gain common. Others are selling cattle early for the same reason. All are hoping this market weakness results in lower replacement costs.
Todayâ€™s USDA Crop report may throw a small wrench in those works, with the estimated corn yield of 169.5 bushels per acre and crop of 14.152 billion bushels way above expectations. Corn prices are falling fast along with cost of gain estimates. So, despite cheaper fat cattle, cheaper corn than expected will provide some support for feeders.
There is cattle feeding equity around this year after a couple of very lean years and no one wants to let it get away. 2017 will turn out to be a decent year for cattle feeding after all most likely, with risk laid off on futures and the most cattle on feed since 2012 or maybe longer.
Mother nature is adding weight to cattle seasonally with steer carcass weights being reported today for the week ended July 29 up 7 pounds WOW, down 8 pounds YOY and at 875 pounds, 2 pounds over the 5-year average for the first time since March.
On the packing side, the hammer is down. Packers needed to buy cattle this week and got it done easily, taking on a tremendous amount of inventory dollars cheaper. Possibly the biggest kills and production of the year are rumored to be scheduled between now and Labor Day and profit margins will expand. End users will be inspired to keep beef features in the mix, attracted to great wholesale prices. Boxes may not experience a seasonal up this month but the downside is relatively limited and the volume produced and shipped will be huge, all good things if you are a packer.
CME cattle futures open interest has plummeted this week, losing over 16k contracts in live cattle futures as most active Oct LC dropped to early April chart points, only a couple of bucks above the major support at $104.50-105 and $15 off the contract high made in June. The market is oversold but bottom pickers are leery. Until cattle feeders are done rushing the cash market, futures traders will be careful not to step in front of this market.